Trading company in Singapore is the type of business entity that involves the import and export of goods for different purposes, local consumption, or selling products to foreign markets for example. Trading business can be a little bit trickier to establish in Singapore due to the fact that some licenses and permits need to be granted before operation.
BBCIncorp will guide you through the detailed procedure of starting a trading company in Singapore. Moreover, related aspects such as tax, storage, and clearance of goods will also be discussed in this blog to provide you with a part of insight into how this kind of business works.
1. Reasons to Start a Trading Company in Singapore
There are many advantages to establish a trading business in Singapore:
- Strategic location: the country is situated in the heart of Asia, connecting east and west. It is the key facilitator in the flow of international trade.
- Excellent infrastructure: Singapore has some of the busiest ports in the world with an outstanding transportation system. There are more than 80 international airlines that connect Singapore to 180 cities and around 200 shipping lines that connect Singapore to more than 600 ports worldwide. One of its airports, Changi Airport, is the world-class awarded airport.
- Commodity trading hub: Singapore has attracted some of the largest international trading companies and accounted for a major proportion of commodity trading in Asia.
Many other side benefits of starting a trading company in Singapore are preferential tax system, well-educated workforce, pro-business environment, and so forth.
2. How to Start a Trading Company in Singapore
The procedure comprises the following stages:
The process of forming trading businesses is quite similar to the general procedure of company establishment in Singapore, comprising two major steps:
- Choosing the types of business structure for the trading company. The most common one is private limited company
- Registering via BizFile+ after the approval of the company’s name
For detail on the overall establishing procedure, you can check out another blog of ours on How to set up a company in Singapore.
2.2. Customs Account Activation
Subsequently, your trading company needs to activate a Customs account by registering with Singapore Customs, which will allow you to apply for permits in the field of import and export. The required documents for account activation are:
- Particulars of the entity after being successfully registered and issued with Unique Entity Number (UEN)
- Particulars of Primary and Secondary contact person who will receive all the notifications and correspondences from the Singapore Customs
- Other supporting documents (if required) like copies of ID card, particulars of authorized personnel
The application for Customs account activation may take only 15 minutes and the standard processing time is about 3 working days upon the receipt of all the supporting documents. However, should there be no supporting documents required at all, the result notification will normally be sent to the Primary contact person within only 4 working hours.
2.3. Licenses and Permits Application
Next, due to the nature of such trading business, your company must obtain some specific permits before carrying out operation:
Permits for import and export of all goods
- For import of all goods, IN Permit must be obtained through TradeNet before importing goods into Singapore
- For export of all goods, OUT Permit must be obtained through TradeNet:
- Before exporting controlled goods;
- Before exporting goods by rail or road;
- In 3 days of exporting non-controlled goods;
- In 3 days of exporting goods by sea or air
Licenses and permits for import and export of controlled goods
There are many products that are labeled as “controlled goods”, which can be food, medicines, or tobacco products for instance. In order for a trading company to import or export these controlled goods, an application for permits must be sent to relevant Controlling Agencies in Singapore.
To find out whether your transported products are controlled goods and which Controlling Agency is in charge if they are indeed controlled goods, please visit the Singapore Customs HS/CA portal.
Certificate of Origin for export of local goods
Certain importing countries may require Certificate of Origin which helps to identify the origin of exported goods. There are two types of Certificate of Origin:
- Ordinary Certificate of Origin is a trade document identifying the origin of goods
- Preferential Certificate of Origin refers to a document allowing the buyers (importing countries) to pay lower customs duty if the goods are exported under a Free Trade Agreement or Schemes of Preferences
For more detailed information on such certificates, click here.
Licenses and Permits for export and transit of strategic goods
Strategic goods refer to items and related technology that is used to produce weapons of mass destruction. In case your company needs to transport such goods, please contact and apply for a permit from the Singapore Customs, which is the National Authority to administer the Strategic Goods Control Act.
Additional licenses and Permits for import of goods (when requested)
Under these circumstances, Import Certificate and Delivery Verification (ICDV) must be obtained:
- The goods being imported into Singapore are subject to exporting countries’ export control (high-tech items for example); or
- The exporting countries require such documents.
Please note that customs permit application can only be done by Declaring Agents on behalf of the trading company. You can choose either to appoint a Declaring Agent or to register yourself as a Declaring Agent.
2.4. Inter-bank GIRO Application
Another important step is to maintain inter-bank GIRO with the Singapore Customs. This is required to pay tax and fees that will incur in the course of your company’s trading operation. With GIRO, these payments can be directly deducted from your bank account.
To set up GIRO, you need to fill in the application form and simply mail it to the authority (Singapore Customs). The result will be informed to you via fax or email within 3-4 weeks.
3. Related Tax and Fees of Trading Business in Singapore
There are 2 types of taxes imposed on imported goods that you need to bear in mind: Customs/excise duty and Goods and Services Tax (GST):
Customs and Excise Duty
Only dutiable goods are subject to customs and excise duty, including 4 types:
- Intoxicating liquors
- Tobacco products
- Motor vehicles
- Petroleum products and biodiesel blends
Regarding types of duties, excise duty is the duty levied on goods that are either manufactured in Singapore for export purposes or imported into Singapore. Meanwhile, customs duty is the one levied on goods that are imported into Singapore excluding excise duty.
These duties are calculated based on ad valorem rates (in proportion to the customs value of goods) or specific rates (per weight or quantity unit). For the list of dutiable goods and their respective rates, click here.
Goods and Services Tax
The GST is levied at the rate of 7% on all goods imported into Singapore, calculated based on the Customs value or the last selling price, plus all duties, shipping and freight charges.
Please do note importers, under some circumstances, can still:
- Claim preferential tariff treatment under Free Trade Agreements;
- Be exempted from duties and/or GST under Temporary Import Scheme of Singapore Customs or relevant schemes of corresponding authorities;
Additionally, there will be Procedural and Administrative fees that your trading company needs to pay.
4. Storage of Goods
Free Trade Zone
These areas are built-in Singapore airports and seaports for goods storage. All dutiable goods can be deposited in the free trade zones, excluding intoxicating liquors and tobacco products. On the other hand, goods transported by rail or road cannot be stored in such areas.
What makes it special is that duties and GST levied on imported goods will be suspended when deposited in these zones until the goods leave the zones and enter into Singapore customs territory for local use. This means if your trading company re-export the goods after temporarily storing them in the free trade zones, your business does not have to pay any duties or GST at all. This can be a huge benefit to the company’s cash flow.
These places are for storing dutiable goods (including intoxicating liquors and tobacco products) where duties and GST are suspended until the goods leave the licensed premises and enter into the local market. It is possible for a normal warehouse to be converted into a licensed warehouse under the License Warehouse Scheme.
Zero GST Warehouses
These places are for storing non-dutiable goods (goods are not dutiable ones) where GST is suspended until the goods leave the licensed premises and enter into the local market. It is also possible for a normal warehouse to be converted into a zero GST warehouse under the Zero GST Warehouse Scheme.
5. Clearance of Goods
For both conventional or containerized cargo, you need to present the cargo along with the approved Customs export permit and other supporting documents (such as invoice, packing list and Bill of Lading or Airway Bill) to the Immigration and Checkpoint Authority (ICA) officers for verification if:
- It is specified in the permit conditions; or
- The goods are dutiable or controlled ones.
Likewise, for conventional and containerized cargo transported by air or land, you need to produce the goods with approved Customs import permit and other supporting documents such as invoice, packing list and Bill of Lading or Airway Bill to ICA officers for verification.
Meanwhile, for containerized cargo transported by sea, you are not required to present those documents to the checkpoint officers at the entry points.
6. Financing and Risk Management Solutions for Trading Companies in Singapore
When it comes to trade finance and risk management, a trading company in Singapore can consider the following:
Letter of Credit
The most common practice in Singapore to avoid non-payment from buyers or non-delivery by sellers is Letter of credit (LC). It is a form of payment guarantee from the buyer’s bank to the exporter. This means that the payment is secured before the shipment of goods and buyers can pay upon the receipt. In addition to the original Letter of credit, there are also other options such as Back to back LC, Trust receipt and packing credit.
Furthermore, there are many trade finance services offered by Singapore banks that a trading company can make use of:
- Overdraft: it allows you to overdraw the account with interest charged only on the exceeding amount.
- Revolving Credit Arrangement: you can draw from available funds with a fee, and the credit line is automatically replenished when you pay off debt.
- Transaction loan: loan which can be applied to finance a confirmed order.
- Term loan: loan with condition to pay back within a pre-determined set of period of time.
- Inventory financing: loans collateralized by unsold inventories.
- Factoring receivables: type of funding that use outstanding customer invoices as collateral.
Trade Credit Insurance (TCI) offers a trading company in Singapore protection against non-payment from the buyers. Furthermore, The Trade Credit Insurance Scheme (TCIS) from the Enterprise Singapore can support up to 50% of the minimum insurance premium for TCI policies.
To purchase TCI policy, please contact any Singapore-registered TCIS insurer. They will also assist you to submit an application for the TCIS support.
7. Key Takeaways
- The formation of a trading company in Singapore comprises: Business registration, Custom account activation, licenses/permits application and inter-bank GIRO application.
- For imported goods, there will be duties and GST to be paid.
- There are free trade zones, licensed warehouses and zero GST warehouses which duties and/or GST are temporarily suspended when stored in.
- For export and import of goods, Customs permits normally need to be presented to ICA officers at checkpoint for clearance.
- Letter of credit, loans and insurance are great solutions to manage financial risks for trading companies in Singapore.
Should you have any further questions, feel free to contact us now! In case you are ready to start your own trading business in the city-state, BBCIncorp can help since we provide top-notch Singapore company incorporation services.